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Automobiles: Buy Maruti
Volumes continue to remain robust for Maruti, with popular models such Swift, Dzire and Eeco continuing to have 4-
8 weeks of waiting. MSIL has increased capacities by 30% over the last 6-8 months through de-bottlenecking of
existing capacities. MSIL will also add capacity of 0.25 mn units by Oct-11 and another 0.25 mn by Mar-12, which is
likely to reduce the waiting periods across products. We have factored in 28% and 12% dom. volume growth for
FY11E and FY12E respectively
Market share loss limited in 2011: Despite slew of new launches by competition in the A2 segment (Figo, Polo,
Micra, Beat etc.) in H1FY11, MSIL’s A2 segment market share has only marginally dipped to ~57%. We expect the
impact of the recently launched Toyota Etios (competes with Dzire: ~8% of dom. vols) to be limited as Toyota will
have production capacity of ~70,000 units p.a. in FY11. Additionally, due to the limited distribution capabilities, the
volume ramp up is likely to be gradual
Maruti’s operating margins (excluding royalty) had taken a hit in the last few quarters due to the inability to pass on
the higher costs. We believe that a benign pricing strategy is a temporary phenomenon, till competitive launches
benefit of lower cost of de-bottlenecking (of ~Rs 1 bn) is yet to accrue fully. Additionally, factors such as increasing
localization, development of in-house R&D and shift to natural gas in Manesar are likely to aid margin expansion
On a longer term basis, the Suzuki-VW synergies are likely to aid profitability for the co
We have a BUY rating on the stock with a TP of Rs 1,755 (9x FY12E EV/EVBITDA + Rs 39/share as value of subs),
which implies a 32% upside from current levels
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